The Amazon Way
Health insurers looking for guidance on how to compete in a fast-paced environment won’t find many examples within their own industry. But they can look to industries where the clockspeed has long been fast and furious, such as online retailing. One excellent model for them to study is Amazon.com Inc.
Amazon has built a full-service, seamless vertical approach — including order fulfillment, recommendations, and customer service — around its core retail business over the past decade. Simultaneously, it has staked out beachheads in key horizontal platforms, becoming a partner to other vendors through Amazon Marketplace, e-commerce hosting, and Web services (home of its much-ballyhooed cloud computing business). These businesses generate additional revenues that are funneled back into R&D for Amazon’s core business.
This kind of approach could translate very well for healthcare insurers today, but to make it work, they will have to establish the proper balance between vertical and horizontal integration, and between control and speed. They will need a vertically integrated approach that keeps critical components under proprietary control to create differentiation. At the same time, they will need strong horizontal capabilities that can be deployed in fast and flexible ways to help master accelerating product cycles.
For example, insurers that decide to help physicians use EHR data will need swift application-development capabilities. That robust expertise could be deployed in multiple vehicles (such as cloud-based computing to the physician’s desktop or to handheld devices) and for multiple purposes (for example, health analysis or prevention campaigns). New businesses like these could enable insurers to strengthen physician relationships and create future revenue streams. Amazon’s example also suggests that the most successful insurers will be those that continually engage their customers through product design and nimbly capitalize on emerging capabilities.
Three Areas of Focus
To compete effectively in a faster environment, insurers will need to develop capabilities that enable them to achieve the following outcomes.
1. Business systems designed for rapid product development. Insurers often serve several customer segments in different regions and provider networks. This emphasis on breadth has contributed to an abundance of uncoordinated technology strategies and a scattershot approach to value chain design. Furthermore, speed-to-market has often been achieved via custom development rather than via an architecture designed for rapid product cycles. Over the long term, this hampers insurers’ efforts to be truly nimble.
Insurers need a coherent infrastructure that can deliver over successive product cycles. This suggests that they should adopt a business architecture that can be broken into simpler subsystems, that uses modular and off-the-shelf components, that assumes technological obsolescence, and that preserves future flexibility.
2. A consumer product design mind-set. Insurers have traditionally maintained market share by locking in networks of customers and providers, and in many markets by relying on strong brand names. But they may be ill-equipped to compete on product features in an environment with low switching costs and intense competition.
To succeed in this emerging environment, successful health plans will develop robust product ideation and iteration capabilities. They will use these capabilities to better align demand with care utilization, creating new products (such as one-price care bundles) and designing incentives that shift care to less-expensive channels (such as non-acute care facilities and preventive health programs). In addition, to capture the expected growth in individual and small group markets, insurers will need to sell directly to these groups, manage their experience, and encourage healthy behaviors. This will require new retail capabilities in customer engagement, including the support and provision of enhanced interventions and self-care, as well as new service channels.
3. Expertise in entering adjacent markets. Although some insurers may decide to stick to their traditional strengths in core administrative services to insulate them from the faster pace, they are likely to discover that competing on transactions alone has drawbacks. The large-scale system migrations required to significantly improve transaction speeds are both costly and risky. Only a few insurers will achieve the necessary economies of scale, and they will most likely become outsourcing partners for the rest of the industry.